13

Honneth’s Democratic Sittlichkeit and

Market Socialism
Michael Nance

1 Introduction

In Freedom’s Right, Axel Honneth offers a nuanced and historically rich discussion of
the moral possibilities and limits of market society. Building on Hegel, Polanyi, and
Durkheim, Honneth argues that market society is not inherently morally objectionable
if economic markets are ‘embedded’ in a system of other social institutions that rein in
the market’s pathologies and excesses. In fact, Honneth argues that economic markets
can provide a site for recognitive interactions in which agents experience what,
following Frederick Neuhouser, he calls social freedom.1 Thus there is a redeemable
moral core of market society that anchors Honneth’s detailed immanent critique of
contemporary economic life. Honneth uses this moral core to reconstruct twentieth-
century European social democracy as a site of social freedom. Honneth’s arguments
thus serve a dual purpose. Freedom’s Right aims both to reconcile us to our social world
by showing how its institutions, including the market, can embody social freedom,
and at the same time to use the values embedded in those institutions as a yardstick
against which to measure and criticize social reality. Like Hegel’s Philosophy of Right,
Honneth’s book is at once a work of theodicy and a work of immanent critique.
My chapter makes two contributions to our understanding of Honneth’s view
of markets and social freedom as he develops it in Freedom’s Right. First I aim to
reconstruct his accounts of social freedom and legitimacy as these relate to market
institutions. This strictly conceptual work occupies §§2–4. Second, in a more social-
theoretic mode, I argue in §§5–9 that the trajectory Honneth describes in his
normative reconstruction of the constellation of institutions that he calls ‘organized
capitalism’ ultimately requires for its completion the rejection of private ownership in
favor of some form of market socialism.2 According to this hypothesis, the failure of
social-democratic capitalism to maintain its mid-century advances in social freedom
can be explained in part by the labor movement’s failure fully to socialize ownership
rights in the means of production. My argument for this claim centers on an account of
the differing expressive properties of market capitalist and market-socialist economic

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 236 From Marx to Hegel and Back

institutions. Both parts of the chapter draw on Honneth’s own commitments; my

critique is thus meant to be internal to his project. The overall aim is to show that
structures of capital ownership can either support or destabilize the achievement of
social freedom in the market.

2 Two Interpretations of the Market

According to Honneth, the history of struggles for workers’ and consumers’ rights
in Western capitalist countries can be seen as the site of a conflict between two
interpretations of the kind of freedom realized in the market.3 On the first notion
of negative or legal freedom, markets are “conceived of in terms of strategically
calculating economic actors”4 engaged in “exclusively purposive-rational, self-
interested calculations”.5 From this point of view, the market is a space for the pursuit
of individuals’ private goods. There are no “pre-contractual, ethical norms” in place
on such a conception that could constrain the self-interested activity of market
participants.6 One recognizes others only insofar as such recognition is necessary for
successful strategic interaction in which one achieves one’s ends, which are defined
individualistically.
On the second, social interpretation of freedom, the marketplace offers sites for
recognitive interaction in which individuals can cooperate freely and respond to each
others’ desires, needs, and abilities. Importantly, if it is to be a site of social freedom,
the market must provide a system of complementary role obligations to which all
could freely consent.7 The free consent requirement rules out non-reciprocal relations
of economic domination, in which the freedom of one becomes the un-freedom of
another.8 The market, on the social freedom interpretation, is an effective way of
coordinating economic activity to make sure that individuals’ ends are complementary,
so that all can realize their freedom together.9 And markets are more efficient than
other economic arrangements. But beyond these explicitly recognized social purposes
of coordination and efficiency, market interactions are not viewed as opportunities for
the unfettered pursuit of individuals’ private interests. Instead, participants understand
the market as existing for the sake of cooperatively realizing the interests of all, who
stand in relations of solidarity with one another that transcend the social sphere of
the marketplace.10 These relations of solidarity are anchored in social institutions
such as labor unions and consumer cooperatives that ‘embed’ the market. Embedded
markets allow individual workers and consumers to define and to achieve common
aims through social cooperation with other citizens and firms, mediated by civil society
institutions.11

3 Two Legitimacy Criteria for Market Institutions

The distinction between the social freedom and legal freedom views of the market
provides Honneth with the material for an account of the legitimacy of economic
institutions. We can analyze Honneth’s legitimacy criterion for market society in

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 Democratic Sittlichkeit and Market Socialism 237

terms of two connected requirements. First, markets must actually serve the interests
of all participants.12 Call this the ‘common good’ requirement. Although it is perhaps
most natural to conceive of participants’ interests in strictly economic terms, Honneth
instead analyzes the idea of ‘the interest of all’ in terms of mutual recognition: Market
arrangements that do not allow each participant to receive equal recognition of
her particular needs, desires, and abilities, and to reciprocate such recognition in
cooperation with others, will be to that extent illegitimate.13 This is the essence of
Honneth’s democratic Sittlichkeit: Institutions should be judged according to whether
they allow citizens to recognize each other as equal partners in cooperation. In such a
scheme, each individual holds that her freedom would be impoverished in the absence
of this form of institutionally mediated cooperation; one’s cooperation partners are
thus constitutive moments of one’s own freedom. Legitimate markets provide us with
scripts for actions that are inherently cooperative in this sense, for given the complexity
of modern economies, acts of production and consumption cannot be completed by
isolated individuals.
The second part of Honneth’s legitimacy criterion holds that market participants
must be able to know or see that the social function of markets is to serve the interests
of all participants, understood as equal partners in cooperative interaction, and that
their society’s market economy in fact serves this function. And market participants
must “remain aware” of these facts over time.14 Call this the ‘epistemic transparency’
requirement. What, precisely, the epistemic transparency requirement entails is
not immediately clear in Freedom’s Right. Honneth has in mind more than mere
epistemic accessibility, for a fact could be epistemically accessible to me without my
ever accessing it. Used as a criterion for market legitimacy, epistemic accessibility
would hold that, as long as it is possible for participants to know that the market is
a system of social freedom, then markets are legitimate. In principle, then, everyone
could go through their entire lives conceiving of the market legalistically, and the
epistemic accessibility requirement could still be satisfied.
But given the nature of social freedom, it is, in fact, not possible that the market
could be a sphere of social freedom without market participants knowing it. There is an
internal connection between the way individuals conceive of their interactions in the
market and the nature of the market itself.15 For conscious awareness of one’s reciprocal
relation to others as an equal participant in mutually agreeable, complementary role
obligations—that is, conscious awareness that one is cooperating with others to
advance the common good—is built into the structure of the recognition relations that,
for Honneth, constitute social freedom.16 In a system of social freedom, market agents’
actual background knowledge about the social role and limits of the market economy
gives interaction in the market a distinctive, cooperative character in comparison
with legal freedom conceptions. This is the reason, I take it, that Honneth claims that
individuals must in fact “remain aware” of the function of their economic institutions
in promoting the common good: Social freedom involves cooperative relations, and
it is part of the structure of such relations that those who cooperate with one another
must be consciously aware that they are cooperating with one another. It follows that,
for the market to be a sphere of social freedom, not only must knowledge about the
market system’s function in promoting the common good be accessible to all, it must in

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fact be at least periodically accessed by all. Mere epistemic accessibility does not suffice
for the kind of epistemic transparency necessary for social freedom.17
Honneth’s theory of legitimacy provides a way to evaluate the system of market
institutions in a democratic Sittlichkeit. For economic institutions to function well
requires that they meet both the common good and the epistemic transparency
requirements. There are two kinds of cases in which the epistemic transparency
requirement might fail: first, cases in which the system of political economy also fails
to meet the common good requirement of being in the interest of all participants;
and second, cases in which the common good requirement is satisfied, but market
participants believe, due to a lack of epistemic transparency at the institutional level,
that the common good requirement is not satisfied. In the second kind of case, the
false beliefs about the function of the market would have real effects on the actual
behavior of participants in the economic sphere, with the result that the market
economy would soon also fail to meet the common good requirement—believing the
market economy to be a sphere of self-interested behavior, citizens would defect from
cooperative economic behavior, and the market would cease to be a space in which all
participants can receive equal recognition as partners in pursuing the common good.
Thus the common good requirement and the epistemic transparency requirement are,
in practice, closely intertwined: A society that fails to meet one of the requirements will
soon fail to meet both.18

4 Two Views of Capital

Whether market agents interpret market interactions in terms of legal or social freedom
has implications for agents’ understanding of the proper function of patterns of capital
investment. When individuals interpret economic life through the solidaristic lens of
social freedom, capital is viewed as a social asset that should be subject to democratic
norms and thereby directed toward the common good in the socially embedded
marketplace. Consider the following example from Freedom’s Right. In his discussion of
the development of ‘organized capitalism’, Honneth approvingly mentions the attempts
of governments in the early twentieth century to structure securities markets in such
a way as to “obligate powerful joint stock companies to serve the public interest and
the common welfare”.19 In this example, a non-market democratic institution constrains
the functioning of capital markets to promote the common interest. This is one of the
primary functions performed by the cluster of state and civil-society institutions that, on
Honneth’s account, are supposed to ‘embed’ the marketplace: These institutions restrain
the profit motive and influence investment decisions in such a way that patterns of capital
investment promote the public interest.20 Thus in Honneth’s account, capital investment
is supposed to promote the common good, and he argues that we need an institutional
framework to make sure that capital does not stray from its proper public function.
If market participants take up the standpoint of social freedom, then, they regard
capital as a social asset that should be subject to democratic constraint to promote the
common good. Capital’s proper function is to provide the material conditions for a free
community of equals who recognize each other as such. If participants in economic

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 Democratic Sittlichkeit and Market Socialism 239

life take up the perspective of legal or negative freedom, by contrast, the notion of
the common good drops out of sight entirely. From this fact it follows, trivially, that
legal or negative freedom cannot understand capital as a tool for the promotion of the
common good; instead, agents who adopt the legal/negative freedom framework for
understanding economic life must view capital as a private asset for the promotion
of individuals’ private goods. In making the claim that the legal/negative freedom
perspective cannot allow for the possibility of the public good, I am relying primarily
on Honneth’s remarks that characterize the legal/negative freedom view of the market
as a site for strategic self-interested behavior.21 If all market agents construe themselves
and others as rational agents concerned only with their own narrow interests, then the
only goods that are in view for any market agents are their own private goods and the
private goods of other market agents. The very idea that economic markets could be
legitimate only to the extent that they serve the common interest falls by the wayside
on such a conception. From the standpoint of market participants who conceive of the
market in terms of negative/legal freedom, there are only private, individual purposes,
from which it follows that from this point of view, the social function of capital can
only be to serve private, individual purposes.

5 Social Freedom and Economic Democracy

The mere fact that the social freedom interpretation views capital as a social asset
does not decide any of the important questions with respect to concrete economic
institutions or forms of capital ownership. It is still an open question whether the best
way to treat capital as a social asset is to subject it to state ownership; or whether it
would better serve the public interest to allow capital to be privately owned; or whether
perhaps some third alternative would do better than either of these.22 To make the
case for a specifically market-socialist reading of Honneth’s democratic Sittlichkeit,
then, more argument is required. As a first step, I give a brief exposition of Honneth’s
reconstruction of the rise and fall of economic markets as sites of social freedom in
European social-democratic countries during the twentieth century. This section
focuses on the rise of the social freedom understanding, arguing that the demand for
the socialization of capital ownership was already part of workers’ struggles for social
freedom in labor markets.
In Honneth’s account of labor market struggles, the ‘social’ interpretation of
the market was the predominant view among workers and consumers in western
European countries in the decades following the Second World War, during the period
of what Honneth, following Rudolf Hilferding, calls “organized capitalism”.23 Honneth’s
normative reconstruction narrates the steady progress made by the labor movement in
western European countries up until the 1970s. Honneth summarizes his account in
the following passage, which is worth quoting at length:

In our idealizing reconstruction … we have not only seen how much resistance
such attempts to realize social freedom have encountered in the profit interests
of capitalist enterprises, but also that with each victory in the struggle for social

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freedom, the extent of the normatively required measures seems to grow. The
establishment of social rights that were to protect workers from the most severe
risks of wage labour was followed by the realization of the necessity of educational
reforms to improve equality of opportunity; soon after, it became clear that even
monotonous and purely routine activities had to be eliminated because they
prevented any experience of cooperation in a division of labour; and finally—now
we are in the middle of the twentieth century—there arose the belief that only
the active involvement of wage labourers in decision-making processes within the
firm could tame the profit interests of the company and lead to the cooperative
restraint of the market.24

Drawing on a wealth of historical, economic, and sociological literature, Freedom’s

Right elaborates each step of this historical progression in great detail. But for my
purposes, the summary I just quoted suffices to convey the main ideas of Honneth’s
account. The last point Honneth mentions in this passage, “the active involvement of
wage labourers in decision-making processes within the firm”, is especially important
for him. Honneth is referring to the institution called co-determination. The general
idea of co-determination is that workers should be able to exercise some agency in
determining ‘matters of wages and working conditions’, as well as in broader issues
such as the appointment of managers, the making of decisions regarding the allocation
of profits accruing to the firm, and setting priorities for social investment.25
Honneth has no illusions that the codetermination rights actually achieved in mid-
century social democracies were sufficient to realize the economic democracy that was
the goal of progressive unionism for much of the nineteenth and twentieth centuries;
these rights were, at most, a quite modest step in that direction.26 Still, co-determination
is a step in the direction of social freedom, co-determination strengthens the sense of
solidarity and cooperation among workers. Because they have the capacity collectively
to assert their common interests, workers are able to actualize their freedom in their
social world; and because their capacity to assert their common interests depends
on antecedent norms of social solidarity, workers are able to recognize each other as
collectively enabling the freedom of all. Lastly, the institution of co-determination
expresses a sense of social respect for the contributions of workers to the productive
process.27 For all of these reasons, worker co-determination as it actually existed in
the social democracies created a limited, yet nonetheless important, recognitive space
in which workers could experience social freedom. Although Honneth implies that a
more radical expansion of institutional opportunities for co-determination would have
been required for the full realization of social freedom in economic life, it is important
for him that actually achieved co-determination rights show the potential of market
economies as spaces of social freedom.
What does all of this have to do with capital ownership? The demand for
democratic codetermination in the workplace and the broader economy is at its core
a demand that workers gain control over at least some of the functions previously
performed by the ownership class. To see why, consider the bundle of rights
traditionally included in private property in the means of production in capitalist
societies. Following Thomas Weisskopf ’s analysis, we can decompose capitalist

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ownership rights into control rights and income rights. Capitalist forms of ownership,
according to Weisskopf, “are characterized by the bundling of control and income
rights into comprehensive ownership rights”.28 In a system of capitalist ownership,
capitalists have the legal right to control the means of production that they own,
and the legal right to the profits of the firms that they control. Control rights include
especially the right to appoint managers and thus indirectly to run the operations of
the firm, and more generally the right to hire and fire employees; the right to control
the conditions under which means of production may be used (when, by whom, for
what purpose, etc.); as well as the right to make strategic decisions regarding the
long-term direction of the firm. Income rights are self-explanatory: If the firm makes
a profit, it accrues to the owners. Both control rights and income rights are included
in private property in the means of production. Depending on the precise form of
co-determination at issue, workers may take over aspects of either control or income
rights, which, although they are bundled together in capitalist ownership, are both
conceptually and really separable.
Since these functions are part of the bundle of rights that have historically
constituted private ownership of the means of production, it follows that the demand
for co-determination rights is a demand for the restructuring of ownership rights in
the means of production. As Honneth recognizes in Freedom’s Right, the demand for
co-determination was regarded by labor activists in the twentieth century as a first step
on the path toward economic democracy, which implies the socialization of control
rights and income rights in the means of production.29

6 Misdevelopment of the Market

According to Honneth, progress in the realization of social freedom in the labor

market has broken down in recent decades. The social interpretation of the market
has given way to a more individualist, negative understanding of market freedom.
Honneth refers to this recent shift toward individualism as a “misdevelopment”, that
is, a regression from the historical promise of the marketplace as a sphere of social
freedom.30 As Honneth acknowledges, this misdevelopment poses a clear challenge to
his progressive narrative. He catalogues the recent negative trends in the labor market,
which include a “continuous fall in wages”, “growing precariousness of employment”,
and “fatalistic feelings of powerlessness”.31 Honneth proposes the following as among
the complex set of causal factors responsible for these changes: the “increasing pressures
of globalization” and global competition, which have led to financial deregulation;
a “dramatic” alteration in the “composition of the stock exchange” toward large,
ruthless institutional investors; and, beginning in the 1970s, the “comprehensive re-
composition of ‘proletarianness’” away from traditional industrial wage labor toward
low-level salaried employees and service workers.32
Further compounding the challenge to Honneth’s narrative, he acknowledges
that workers in the social democracies have for the most part not countered these
misdevelopments with collective resistance.33 As one possible explanation, Honneth
speculates that “over the last few decades the responsibility for success in the

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market economy has been strongly individualized”.34 This psychological shift toward
individual responsibility, in turn, was caused by the colonization of non-market social
institutions by market values beginning in the 1990s.35 What this means, in practical
terms, is that the set of values and psychological attitudes characteristic of market actors
came to be applied in social contexts that were not previously conceived as spheres of
competitive market interaction—for example, in public educational institutions, or in
the sector of public health, two spheres which in recent decades have been subject to
privatization and market reforms. As a consequence of this colonization, individuals
increasingly came to view themselves and others as self-interested strategic actors
(i.e., as agents of legal freedom) in all aspects of social life, which in turn led to the
breakdown of cooperation and the corresponding individualization of responsibility
for market outcomes.36

7 Dual Function of Economic Institutions: Instrumental

and Expressive
Organized capitalism ultimately proved to be an unstable economic formation. There
are reasons for thinking that, had workers been able to achieve it, market socialism
would have proved to be a more stable vehicle for the achievement of social freedom
than organized capitalism. One main reason is this: Market-socialist institutions
would have expressive properties that are lacking in capitalist economic institutions.
The institutions of market socialism would effectively announce to all citizens that:
(1) capital is a social asset, not a private asset; and that (2) the marketplace is an
instrument in the service of economic cooperation that treats all citizens as equals.
These expressive properties would have a stabilizing effect on the socioeconomic
structure of market socialism, for they clearly express both the purpose and the limits
of market society. Citizens’ consciousness of the proper social function of economic
markets as instruments of social freedom would counteract the tendency for market
values to colonize other social spheres. Thus an additional explanatory factor in
the decline of the social freedom interpretation of the market in social-democratic
countries is the failure of the workers’ parties to fully socialize ownership of the means
of production. To make a case for these claims, I first need to briefly sketch, by way of
some examples, what it is for a social institution to have an expressive property.
I take it to be intuitively plausible that social institutions can express a society’s
values. Examples might include a constitution or other major body of law, a welfare-
state program, a specific tradition of family or civic life, or an environmental-protection
bureau. Each of these kinds of institutions expresses a set of values affirmed within
a society—the value accorded to certain rights and statuses, a commitment to value
the natural environment, and so on. A clear illustration of the expressive power of
institutions is the case of national constitutions.37 As the most basic legal document
that governs a nation’s affairs, we look to a nation’s constitution to see what values are
regarded as paramount by the citizens of that nation. A constitution does its expressive
work by formally announcing to each citizen that her country has recognized certain
basic rights and liberties as essential and, in some cases, inalienable, and specifying the

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class of individuals to whom these basic rights and liberties apply. Clearly the views and
values expressed by a constitution can be either affirming or degrading; but regardless
of the content of the specific messages it expresses, the fact that the document plays a
visible and agreed-upon public role in establishing basic rights means that it expresses
to the citizens a picture of what it is to be a citizen of that country.
Some economic institutions clearly have an expressive function in addition to
their instrumental function in achieving strictly economic ends, such as promoting
economic growth.38 Consider, as one possible example among many, Norway’s “Oil
Fund”.39 Income from taxes and fees on Norway’s oil resources is deposited into the
public Fund, which invests these deposits in various ways to get a stable return.40 The
idea is that the Fund, which is collectively owned by the citizens of Norway, will be
available for future generations once oil revenues start to fall and Norway’s pension
system begins to need supplementation. Norway’s decision to set up the Fund expresses
its citizens’ commitment to treat the country’s natural resource wealth as a public asset,
as well as its concern for the welfare of future generations.

8 The Expressive Function of Socialist Institutions

This section explains why the expressive properties of market socialism would differ
from those of market capitalism in such a way as to make the former more legitimate
than the latter according to Honneth’s criteria. The market-socialist program can be
summarized as consisting of two key changes in the structure of capitalist ownership.41
First, it involves the socialization of control rights over capital by means of instituting
labor-management in firms and democratic oversight of social investment priorities.
On such a program, the private sector in capitalist economies would be transformed
into a sector of publicly financed, socially owned firms. Banks would be publicly
owned, though as much as possible independently and professionally managed on
a day-to-day basis, and would be the primary institution that finances firms that
compete in the market.42 Second, the market-socialist program socializes profit
and interest income from capital by establishing a (roughly) equal ‘social dividend’
payment for each citizen. The right to profits (the income rights component of the
capitalist ownership bundle) would be distributed (roughly) equally, either among all
of the nation’s citizens, or among the worker-owners of specific firms or economic
sectors, or some combination of both.43 On the models of Roemer and Weisskopf,
for example, each citizen is permanently endowed with a portfolio of stock in the
nation’s socially controlled and publicly financed firms. Citizens cannot sell their
portfolio for cash, but they can trade their shares for shares in other companies, and
draw dividend income from the firms in their portfolio.44 Regardless of the precise
institutional details, the main point is that there would not be a small class of citizens
who control the vast majority of corporate profits, as in capitalist economies.
From the standpoint of social freedom, two institutional features of this framework
have special positive expressive value. First, the fact that investment capital is treated
as a public asset through the socialization of the financial sector makes clear to all
citizens that capital is a tool for the promotion of the common good, and that overall

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patterns of capital investment will take into account the interests of all citizens. Such
an economic framework effectively expresses the view that capital is a public resource.
Second, the fact that each citizen receives a roughly equal stake in the profits of firms
in the form of what I have called a ‘social dividend’ payment expresses the view that
the competition of firms in the marketplace is instrumentally valuable for the sake of
the interests of all participants, for when the economy does well, each citizen benefits
as an equal partner.45 Taking together these two expressive features of market social
institutions, it is clear that, whatever other virtues or vices they may have, these
institutions do a good job of publicly expressing a particular understanding of the
status and social role of capital as an instrument of social freedom. Now, given that part
of Honneth’s principle of legitimacy for market institutions is that such institutions
should make the proper function of the market epistemically transparent to citizens,
and that market-socialist institutions would, in comparison with market capitalism, do
a better job of announcing the proper social function of the market to all citizens, it is
likely that market-socialist institutions would be more legitimate than market capitalist
institutions. For by clearly expressing the function and limits of market society so that
these facts remain visible to all citizens, market-socialist institutions would change the
character of individuals’ interactions in the market.
Organized capitalism, by contrast, sends an equivocal message regarding the proper
social function of capital and economic markets. Some elements of the institutional
framework of organized capitalism appear to confirm the social freedom interpretation.
For example, the institution of co-determination and the state regulatory apparatus
both express a society’s commitment to the view that capital ought to be regarded as a
social asset for the good of all. But on the other hand, the fact that private individuals
possess capital income rights and substantial control rights over capital might be taken
to express the view that the actual social function of capital is to enrich the ownership
class, which lends credence to the legal-freedom interpretation of the market. In the
struggle over how to understand the proper function of the market system, organized
capitalism sends ‘mixed messages’ that provide some expressive support for both legal
freedom and social freedom interpretations.
The hypothesis I want to propose is that part of the explanation of the destabilization
of organized capitalism described by Honneth is that the institutions of organized
capitalism failed to express to citizens that the primary social function of economic
markets is to enable the social freedom of all market participants. If the private
ownership of productive resources gives a foothold for legal-freedom interpretations
of the market, and legal-freedom interpretations of the market in turn give rise to
social pathologies in which the public good falls out of view, then it is unlikely that all
citizens will be able to hold both the private and the public functions of the market in
view, at least not in a stable way over time. And when citizens in organized capitalism
conceive their social interactions with others in terms of legal freedom, their adoption
of this interpretative framework will be reinforced by readily available evidence from
economic life that other citizens have adopted a similar stance, particularly (but not
only) in economic affairs. This evidence of the behavior and social expectations of
others reinforces the rationality of adopting the legal-freedom view of economic life,
that is, of defecting from cooperation. Because from the viewpoint of legal freedom the

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public good cannot constrain the pursuit of private interests, market values will then
tend to colonize non-market spheres, for citizens will lose sight of the proper function
and limits of such values.
If something like this line of argument is correct, then the persistence of private
ownership of means of production in organized capitalist societies will have a
destabilizing effect on the social-democratic compromise between capital and labor.
In particular, allowing a private ownership class to control profits sends the message to
market participants that the social function of capital is to serve the private interests
of self-interested market agents, and that more broadly the marketplace is a sphere
for the strategic pursuit of self-interest. This lends credence to the legal-freedom
interpretation of the market. As a result, individuals more and more came to view
themselves as self-interested strategic actors (i.e., as agents of legal freedom), which
in turn led to the breakdown of solidarity and the corresponding individualization of
responsibility for market outcomes under neoliberal conditions.
An example of this phenomenon can be drawn from the history of Swedish social
democracy.46 The solidaristic wage policy that characterized the Swedish model of
social democracy through the 1970s relied on strong worker solidarity to maintain
national wage equality. As Meidner puts it, one key principle of the policy was that
“equal work should be equally paid, regardless of the profitability of the firm, the size
or location of the workplace. What matters is the kind and nature of work, and the
skills which are needed to perform it.”47 Local unions in highly productive sectors
were tempted to negotiate higher wages for themselves, but to do so would depart
from the norm of solidarity with workers in less productive sectors, who would be
unable to negotiate equally high wages, thus violating the principle that “equal work
should be equally paid”. Maintaining national wage uniformity in accordance with
the solidaristic wage policy therefore required some workers to accept less than they
could in principle receive in the market, were they to set aside norms of cooperation
and solidarity with their fellow workers. This is one aspect of the ethos of solidarity
that was central to Swedish social democracy, and it is an instance of social freedom.
This ethos was eroded by the persistence of private ownership rights in the means of
production. For workers saw correctly that their commitment to solidarity enlarged
corporate profits in high-productivity sectors by allowing firms in such sectors to pay
lower wages than they would have had to pay in the absence of solidaristic national
labor contracts. The unions’ solidaristic wage policy thus allowed capitalists to reap
higher profits than they otherwise would have.48 Workers in the solidaristic unions
thus encountered models for agency in the market that differed a great deal from their
own: On the one hand, their own members traditionally viewed the labor market
as a field for the cooperative achievement of collective aims, in which each member
voluntarily limits her freedom for the sake of the other, and each member benefits
as an equal from the cooperative arrangement, in the form of equal wages for equal
work. On the other hand, capitalists pursued more individualistic aims in the market
place, unfettered by the norms of solidarity and cooperation that constrained the
pursuit of workers’ individual self-interest. Owners of firms were able to exploit the
solidaristic wage policy to increase their profits. In other words, workers were faced
with conflicting evidence as to whether the market was a sphere for the pursuit of

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social freedom or for the pursuit of negative/legal freedom. Under such conditions, it
was understandably difficult to maintain the cooperative ethos that underpinned the
solidaristic wage policy.
Had Swedish workers been able to achieve the full socialization of capital
ownership rights via the creation of wage-earner funds, as Meidner proposed and was
fiercely debated in the 1970s, the profits accruing to capital would (eventually) not
have been captured by a small group of agents of legal freedom, but rather would have
been treated as a social asset that benefited all workers equally. Such an institutional
arrangement would no longer have given mixed messages regarding the function
of the market. The achievement of a form of market socialism, in other words,
would have contributed to the legitimacy and stability of Swedish social democracy,
according to Honneth’s principles. So the failure to achieve the full socialization of the
market should be added to Honneth’s list of causes of the decline of the social freedom
interpretation of the market.

9 Objections

One might object that we need not go all the way to market socialism to satisfy the
epistemic transparency requirement. For example, perhaps more emphasis in the
education system on the social virtues and limits of capitalist markets could stabilize
social-democratic capitalism without fully socializing ownership of the means of
production. One can imagine various proposals along similar lines.
Although I cannot definitively refute this objection, there are several considerations
that count against it. First, consider again the Swedish example discussed in the
previous section. Unless the educational program proposed in the objection could
induce capitalists not to profit from workers’ solidaristic wage policy, then workers
would still be faced with the same situation, in which self-interested market agents take
advantage of their solidaristic behavior. This is just to say that the educational program
would solve the problem only if it could induce private owners of capital to cease to
be agents of legal freedom and instead to adopt the social freedom interpretation of
the market. If capitalists adopted socialist values of reciprocity and solidarity, it is true
that advocates of social freedom would have little reason to complain about a capitalist
political economy, but this seems unlikely, to put it mildly. Second, note that epistemic
transparency is a matter of degree, and that there is no contradiction in adopting both
a market-socialist political economy and the kind of educational program suggested
by the objection. Having multiple institutions promote epistemic transparency
is more likely to result in a system of institutions that meets Honneth’s demanding
legitimacy criterion. Lastly, one could fall back on the common good requirement.
On my analysis, satisfying the common good requirement is a necessary condition
for satisfying the epistemic transparency requirement. Thus one could argue that the
institutions of organized capitalism failed to express the right message to citizens, not
because of a failure of epistemic transparency by itself, but rather because of a failure
to serve the common good, which in turn entails a failure of epistemic transparency.
This line of argument, however, would require much more development, focused on

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 Democratic Sittlichkeit and Market Socialism 247

the relationship between economic institutions, patterns of wealth distribution, and

the role of such patterns in recognition relations.
A second objection holds that there is an internal conflict between the two elements
of Honneth’s legitimacy criterion.49 For one could argue, with some plausibility, that
markets function to promote the common good only if agents within the market
conceive themselves as agents of legal freedom who pursue their self-interest.50 Thus if
the common good requirement is satisfied, the epistemic transparency requirement is
necessarily not satisfied.
By way of response, first note that the objection relies for its plausibility on
a narrowly economic notion of the ‘common good’ as something like ‘aggregate
economic output’ or ‘maximal preference satisfaction’; if the common good is rather
understood along Honneth’s lines as consisting in socially free relations to others, it is
not clear that the objection gets any traction. But let us leave that point aside and grant
the premise of the objection for the sake of argument: Markets promote the common
good most effectively when market agents aggressively pursue their self-interest. One
argument available to a defender of the market-socialist project would be to argue that
individuals can hold both the legal freedom and the social freedom views of the market
more or less simultaneously. Considering precisely this issue, David Miller writes:

It is not difficult to think of relationships that can sustain such a dual character.
Typically these are cases where the underlying objective can only be achieved
by indirect (and apparently contrary) means, or at least can be achieved most
effectively by such means. Consider, for example, a game of tennis between two
friends, each of whose main objective is to give pleasure to the other. Since what
each most enjoys is battling hard on the tennis court, the only way to achieve the
objective is for each to play as hard as he can. On the surface the relationship is
competitive, each trying his best to win; underneath the game is a co-operative
enterprise for mutual enjoyment. Both players understand this, and understand
the other’s point of view. Here the co-operative character of the relationship seems
well able to survive its immediate competitive quality.51

Similarly, Miller argues, market relations could, under market socialism, be

simultaneously competitive and cooperative, since the competition would be known
by all to serve a well-defined cooperative purpose. The expressive properties of the
background institutions of market socialism would presumably aid market actors in
maintaining this form of dual-consciousness over time.52

10 Conclusion

The argument I have presented has a lot of moving parts. Hence, I want to provide a
brief overview of the main points. First, I explained Honneth’s account of legal and
social freedom and the divergent interpretations of economic life implied by these two
concepts of freedom. I also explained Honneth’s account of the legitimacy of economic
institutions, which relies on his theory of social freedom. This part of the chapter was

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 248 From Marx to Hegel and Back

strictly a matter of conceptual clarification. Second, I showed how Honneth uses this
theory to analyze the rise and fall of economic markets in social-democratic countries
as spheres of social freedom. I argued that the struggle between legal and social
freedom interpretations of the economic marketplace was at the same time a struggle
between two views of the proper social function of capital. Third, I argued that market-
socialist institutions would be more stable than organized capitalist institutions due to
differences in the expressive properties of the two institutional frameworks. Market-
socialist institutions would do a better job of publicly expressing the proper function of
economic markets, and would therefore better meet Honneth’s epistemic transparency
requirement. On this basis, I proposed that, in addition to the explanatory factors
Honneth identifies, the destabilizing features of the persistence of private capital
ownership were partially responsible for the fall of markets in organized capitalist
countries as sites of social freedom.
Honneth offers a suggestive argument that the colonization of non-market spheres
by market values and the ‘strategic rationality’ of the economic sphere results in the
individualization of responsibility for market outcomes and a corresponding loss of
solidarity and social freedom. What I have tried to show is that, in comparison with
organized capitalism, market-socialist institutions would do a better job of fulfilling
the epistemic transparency requirement by keeping the proper function of the market
in view for all citizens. A system of market institutions that meets the epistemic
transparency requirement will be more stable and legitimate than a system that does
not. Hence market socialism would be less prone to the colonization of non-market
spheres by market values that has resulted in the pathologies of neoliberalism. In
other words, a market-socialist society would allow for the virtues of market-mediated
social cooperation that Honneth emphasizes in his defense of the market while lacking
some of the destabilizing features of market capitalism implicated in the regression
of social freedom Honneth describes.53 Thus there is good reason for Honneth and
other advocates of the social freedom interpretation of the marketplace to endorse
a market-socialist political economy. The Idea of Socialism, published after Freedom’s
Right, makes clear that Honneth agrees with this latter claim, although his supporting
arguments differ from those offered in this chapter. However, I have not tried to
establish that social freedom is the right normative metric for evaluating market
relations. I have instead taken this point for granted in order to mount an immanent
critique of Honneth’s account of economic life. Thus my argument appeals only to
someone who agrees with the presuppositions of Honneth’s democratic Sittlichkeit.
Still, I hope my reflections may at least prove useful in elaborating the political-
economic commitments of Honneth’s left-Hegelian social theory.54

Notes
1 See, e.g., Axel Honneth, Freedom’s Right (New York: Columbia University Press,
2014), 199–200, for an interpretation of market exchange as mutual recognition. For
Neuhouser’s account of Hegelian social freedom, see his Foundations of Hegel’s Social
Theory: Actualizing Freedom (Cambridge, MA: Harvard University Press, 2000), ch. 1.

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 Democratic Sittlichkeit and Market Socialism 249

2 Honneth has moved explicitly in the direction of some form of socialism in his more
recent work The Idea of Socialism (Cambridge, MA: Polity Press, 2017). I focus on the
analysis in Freedom’s Right, but make references at points to Socialism.
3 For this contrast, see Freedom’s Right, 177, 192, 228, 249–50. Two further clarificatory
notes: First, it is not always clear whether Honneth analyzes this interpretation in
terms of negative freedom or legal freedom, which is a specific kind of negative
freedom. Hence I use the ‘legal or negative freedom’ locution, or sometimes
‘legal/negative freedom.’ Second, Honneth gives very rich analyses of both labor
markets and markets for consumer goods in Freedom’s Right, but does not include
a comparable analysis of capital markets. Thus the issue of capital ownership does
not feature prominently in Freedom’s Right’s normative reconstruction (but see The
Idea of Socialism, 67–70). I focus primarily, but not exclusively, on labor markets in
this chapter, but with an eye toward the implications of social freedom in the labor
market for forms of capital ownership.
4 Honneth, Freedom’s Right, 177.
5 Ibid., 179.
6 Ibid., 184.
7 Ibid., 183–4.
8 Ibid., 189.
9 See ibid., 191: “different markets must be able to reflect the rules prevailing
outside the market to a certain degree in order to be able to fulfil their function of
coordinating economic action.”
10 Ibid., 192.
11 These institutions function for Honneth as updated versions of Hegel’s corporations.
See ibid., 193.
12 Ibid., 191.
13 Ibid., 194.
14 Ibid., 192.
15 Thanks to Fred Neuhouser for pushing me to clarify this point.
16 In Freedom’s Right, 192, Honneth writes of the “necessary consciousness of shared
cooperation”, which “must be seen as anchored within the market economy”. The
idea of self-conscious reciprocity that is central for Honneth is reflected in various
formulations of Hegel and Marx. See Honneth’s discussion of Hegel on recognition
(ibid., 44–7), and his discussion of Marx in Socialism, 18–19. Again, the point
Honneth makes is that “individual intentions must be so clearly interlinked that we
can only achieve our aims cooperatively, conscious of our dependence on each other.”
17 It is still somewhat unclear how frequently and in what contexts one must
consciously conceive one’s agency in the market as a form of cooperation in order to
maintain relations of social freedom. Presumably at least some of the time, one can
act simply as a self-interested market agent (Honneth, Freedom’s Right, 192). This
leads to the broader question of the motivational requirements of social freedom
relations in the market: whether market relations of social freedom are compatible
with self-interested motivations for market transactions, or whether such relations
require a more demanding form of motivation in which we produce and consume for
the sake of the other, as in Marx’s account of communism, or something in between.
For helpful discussion of this question, see Timo Jütten, “Is the Market a Sphere of
Social Freedom?,” Critical Horizons 16, no. 2 (2015), 187–203, at p. 190–2. Honneth’s
formulations of social freedom in the economic sphere in The Idea of Socialism point
toward the more demanding, altruistic motivational requirement (see, e.g., Socialism,

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 250 From Marx to Hegel and Back

23–4), whereas the formulations in Freedom’s Right are more ambivalent (see, e.g.,
Freedom’s Right, 189, 192–3). Honneth has suggested to me in conversation the idea
of a motivational division of labor between institutions and individuals, whereby
individuals agree to design economic and political institutions in such a way that the
institutional background does some of the work in expressing the values and motives
of agents in the marketplace. This suggestion fits well with the expressivist account of
economic institutions I develop below.
18 In effect, this means it is not possible to fulfill the common good requirement in
the absence of epistemic transparency, due to the internal connection between the
two requirements discussed in the previous paragraph. The reverse case, in which
epistemic transparency is met but proper function is not, is also not possible, for
a presupposition of epistemic transparency is that the relevant facts about the
economic institutions—that they promote the common good—in fact obtain. But
it is theoretically interesting to consider a related possibility based on ideological
consciousness, in which individuals believe that it is epistemically transparent to
them that the common good requirement is satisfied, when this is, in fact, not the
case. I do not know how widespread such cases are, but their possibility is surely
relevant for social theory.
19 Ibid., 232–3.
20 See also Honneth’s discussion of the normative and functional priority of the
sphere of democratic will formation over the other social spheres (ibid., 329–32).
This directly implies that economic relations, including ownership structures, are
ultimately legitimate only to the extent that they serve democratic purposes.
21 Ibid., 251.
22 Rawls recognizes a similar point when he says that the decision regarding specific
economic arrangements is not solely determined by his theory of justice. The choice
between what he calls “liberal socialism”, which I here call market socialism, and
“property-owning democracy” will depend on additional factors. See Rawls, Justice
as Fairness: A Restatement (Cambridge, MA: Harvard, 2001), 138.
23 Honneth, Freedom’s Right, 233.
24 Ibid., 249.
25 Ibid., 238.
26 Ibid., 240. For discussion of German union ambitions for economic democracy
in the postwar period, of which factory-level co-determination rights are actually
a fairly minor plank, see Diethelm Prove, “Ordnungsmacht and Mitbestimmung,”
Between Reform and Revolution: German Socialism and Communism from 1840 to
1990, ed. David E. Barclay and Eric D. Weitz (New York: Berghan Books, 1998),
397–420.
27 As Hegel would put it, the social recognition of the value of workers’ role in the
economy gives workers a secure sense of “honor” in occupying a valuable and
socially important role. Cf. Georg Wilhelm Friedrich Hegel, Elements of the
Philosophy of Right, ed. Allen Wood (New York: Cambridge University Press, 1991),
§207, where Hegel discusses the “honor of one’s estate.”
28 Thomas E. Weisskopf, “A Democratic Enterprise-Based Market Socialism,” in
Market Socialism: The Current Debate, ed. Bardhan and Roemer (New York: Oxford
University Press, 1993), 122.
29 Regarding the failure of the postwar labor movement in Germany to achieve any
of its goals related to the full socialization of ownership rights in the means of
production, see Prove, “Ordnungsmacht and Mitbestimmung,” 409–10.

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 Democratic Sittlichkeit and Market Socialism 251

30 “Measured against the institutional achievements of organized capitalism in

terms of the expansion of social freedom during the ‘social-democratic era’ (Ralf
Dahrendorf), the current state of the labour market must be regarded as the result of
a misdevelopment” (Honneth, Freedom’s Right, 246).
31 Ibid., 245–6.
32 Ibid., 244–5.
33 Ibid., 247.
34 Ibid., 250. See also Honneth and Hartmann, “Paradoxes of Capitalist Modernization:
A Research Programme,” in Honneth, The I in We: Studies in the Theory of
Recognition, trans. Joseph Ganahl (Cambridge, MA: Polity, 2014), 169–90, esp. 182–3.
35 See, e.g., Honneth’s comments in Freedom’s Right, 251, regarding the “generalization
of strategic self-optimization”, which “increases tendencies to perceive society as a
network of actors concerned solely with their own benefit. And it seems obvious that
we should regard this as the cause for the individualization of responsibility, which
we previously saw to be the decisive factor in the return to a de-socialized view of
the economic market.” On the topic of “colonization” and neoliberalism, see also
Honneth and Hartmann, “Paradoxes of Capitalist Modernization,” esp. 175–81.
36 Honneth, Freedom’s Right, 251.
37 For an excellent discussion of expressivism in constitutional theory, see Elizabeth
S. Anderson and Richard H. Pildes, “Expressive Theories of Law: A General
Restatement,” University of Pennsylvania Law Review 148, no. 5 (2000): 1503–75. See
also Wibren van der Burg, “The Expressive and Communicative Functions of Law,
Especially with Regard to Moral Issues,” Law and Philosophy 20, no. 1 (2001): 31–59.
38 An institution may have an expressive function even if no one intended that the
institution should have such a function. The expressive properties of an institution
are not necessarily connected to the intentions of individuals; see the discussion of
Anderson and Pildes at ibid., 1513.
39 The socialization of ownership rights in a natural or social resource is not by itself a
sufficient condition to generate epistemic transparency, since in cases where political
corruption is rampant, socialized resource wealth can be used—or can be perceived
as being used—primarily for the benefit of the politically well connected. One could
quibble and claim that such resources are not genuinely ‘socialized’ if they are used
for political figures’ private benefit, but this merely points to the difficulty involved in
genuine socialization of ownership rights, a problem I do not tackle in this chapter.
40 See http://www.nbim.no/en/for more information.
41 For detailed discussions of the political economy of market socialism, see John
Roemer’s A Future for Socialism (Cambridge, MA: Harvard University Press, 1994);
Market Socialism: The Current Debate, ed. Pranab K. Bardhan and Roemer (New
York: Oxford University Press, 1993); Equal Shares: Making Market Socialism Work,
ed. Erik Olin Wright (London: Verson, 1996).
42 For a useful discussion of the problems with the politicization of investment
decisions in a public finance system, and some proposed remedies, see Bardhan,
“On Tackling the Soft Budget Constraint in Market Socialism,” in Market Socialism,
145–55. The classic discussion of this nest of issues is Janos Kornai, “The Dilemmas
of a Socialist Economy: The Hungarian Experience,” Cambridge Journal of Economics
4, no. 2 (1980): 147–57. For discussion of various indirect planning mechanisms that
allow for both some degree of democratic control over investment decisions and the
independence of the professional financial sector, see Roemer, A Future for Socialism,
§12, “A Digression on Investment Planning.”

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 252 From Marx to Hegel and Back

43 See Roemer, A Future for Socialism, 49–50, 55.

44 The existence of a working stock market would provide the public banks with useful
information for monitoring the performance of firms, although Roemer has since
backed off of this claim: see Roemer, “Thoughts on Arrangements of Property Rights
in Productive Assets,” Analyse & Kritik 1 (2013): 55–63, at p. 57.
45 The diffusion of capital income rights has the added benefit that no citizen is able
to profit greatly from the production of public bads, thereby disincentivizing such
undesirable behavior. See Roemer, A Future for Socialism, §7.
46 The argument of this paragraph draws on Rudolf Meidner, “Why Did the Swedish
Model Fail?,” Socialist Register 29 (1993): 211–28.
47 Ibid., 216.
48 Ibid., 217.
49 Thanks to Hannes Kuch for raising this worry, and for the David Miller reference
discussed below.
50 This point was famously noted by Adam Smith in Book IV, Chapter 2 of Wealth of
Nations.
51 David Miller, Market, State, and Community (Oxford: Oxford University Press, 1989),
221.
52 For a rich discussion of this point in connection with Hegel’s account of Sittlichkeit,
see Hannes Kuch, “Ökonomie, Subjectivität und Sittlichkeit: Hegel und die Kritik des
kapitalistischen Marktes,” in Warum Kritik? Begründungsformen kritischer Theorie,
ed. Sven Ellmers and Philip Hogh (Weilerswist: Velbrück 2017), 134–63.
53 It is also worth emphasizing that embedding market-socialist institutions in the
framework of Honneth’s democratic Sittlichkeit gives market socialists resources
to respond to some of the important critiques of earlier market-socialist economic
models, such as that proposed by Roemer. Mieke Meurs, for example, criticizes
Roemer’s model for failing to take into account the cultural preconditions of
economic cooperation; but placing market-socialist institutions in the context of
Honneth’s comprehensive social theory helps us to see market-socialist institutions
as part of a larger cultural formation based on reciprocal recognition. See Mieke
Meurs, “Market Socialism as a Culture of Cooperation,” in Equal Shares, 110–21. And
Debra Satz argues that Roemer’s focus on economic equality fails to address equally
problematic “status inequalities” (Satz, “Status Inequalities and Models of Market
Socialism,” Equal Shares, 71–89); but again, Honneth’s recognition theory is designed
precisely to make such inequalities salient.
54 An earlier version of this chapter was presented at the 2014 conference on
“Anerkennung und Sozialismus” at the Goethe-Universität, Frankfurt. I thank the
audience members at the conference for their feedback. For encouragement and
detailed discussion at key points in revising the chapter, I especially thank Axel
Honneth. For written comments and discussion, I am grateful to Fred Neuhouser,
Hannes Kuch, Steve Yalowitz, and Johannes Röss. For research funding during the
writing of this chapter, I thank the Alexander von Humboldt Stiftung and the CAHSS
Dean’s Office at UMBC.

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 Index

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